One Software Technologies (TLV:ONE) Could Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at One Software Technologies' (TLV:ONE) look very promising so lets take a look.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for One Software Technologies:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.31 = ₪299m ÷ (₪2.1b - ₪1.1b) (Based on the trailing twelve months to September 2024).

Thus, One Software Technologies has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 20% earned by companies in a similar industry.

See our latest analysis for One Software Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for One Software Technologies' ROCE against it's prior returns. If you're interested in investigating One Software Technologies' past further, check out this free graph covering One Software Technologies' past earnings, revenue and cash flow.

So How Is One Software Technologies' ROCE Trending?

The trends we've noticed at One Software Technologies are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 31%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 91%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Another thing to note, One Software Technologies has a high ratio of current liabilities to total assets of 53%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On One Software Technologies' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what One Software Technologies has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if One Software Technologies can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for One Software Technologies you'll probably want to know about.

One Software Technologies is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.